EXHIBIT 4.1
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement"), dated as of August
19, 2000, is between and among the parties identified as a "Grantor" on the
signature pages hereto and such other parties as may become a Grantor
hereunder after the date hereof (individually an "Grantor", and collectively
the "Grantors") and Southridge Capital Management LLC, in its capacity as
collateral agent (in such capacity, the "Collateral Agent") for Sovereign
Partners, L.P., Dominion Capital Fund, Ltd., Canadian Advantage Limited
Partnership, and Atlantis Capital Fund (collectively, the "Debenture
Holders"), holders of 8% Senior Secured Debentures dated August 19, 2000
(the "Debentures") issued pursuant to the Chapter 11 plan of reorganization
of American Health Choice, Inc. and AHC Physicians Corporation dated March
31, 2000 as amended by modification dated June 5, 2000 (the "Plan") and as
confirmed by order of the United States Bankruptcy Court, Northern District
of Texas, dated August 8, 2000 (the "Confirmation Order").
RECITALS
WHEREAS, pursuant to those certain Debentures dated as of the date
hereof issued by American Health Choice Inc. ("AHIC") pursuant to the Plan
and the Confirmation Order, Grantors, AHIC and its subsidiaries, agreed to
secure AHIC's obligations under the Debentures, and the Grantors shall have
executed and delivered this Security Agreement to the Collateral Agent for
the ratable benefit of the Debenture Holders.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
(a) Capitalized terms used and not otherwise defined herein shall
have the meanings ascribed to such terms in the Debentures, and the
following terms which are defined in the Uniform Commercial Code in
effect in the State of New York the date hereof are used herein as so
defined: Accounts, Chattel Paper, Deposit Accounts, Documents,
Equipment, Farm Products, Fixtures, General Intangibles, Instruments,
Inventory, Investment Property and Proceeds.
(b) In addition, the following terms shall have the following
meanings:
"Contracts": all contracts and agreements to which a Grantor is a
party, as each may be amended, supplemented or otherwise modified from
time to time, including, without limitation, (a) all rights of a
Grantor to receive moneys due and to become due to it thereunder or in
connection therewith, (b) all rights of a Grantor to damages arising
out of or for breach or default in respect thereof and (c) all rights
of a Grantor to exercise all remedies thereunder.
"Secured Obligations": the collective reference to all of the
obligations of AHIC to the Debenture Holders whenever arising, for
payment or performance under the Debentures and all liabilities
incurred in connection with collecting and enforcing the foregoing.
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"Trademark License": any agreement, written or oral, providing
for the grant by or to a Grantor of any right to use any Trademark,
including, without limitation, any thereof referred to in Schedule 1(b)
hereto.
"Trademarks": (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and the
goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States
Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any
thereof referred to in Schedule 1(b) hereto, and (b) all renewals
thereof.
"Work": any work which is subject to copyright protection
pursuant to Title 17 of the United States Code.
2. Grant of Security Interest in the Collateral. To secure the
prompt payment and performance under the Debentures in full when due (the
"Secured Obligations"), whether by lapse of time, acceleration or otherwise,
of the Secured Obligations, each Grantor hereby grants to the Collateral
Agent, for the benefit of the Debenture Holders, a continuing first priority
security interest in, and a right to set off against, any and all right,
title and interest of such Grantor in and to the following, whether now
owned or existing or owned, acquired, or arising hereafter (collectively,
the "Collateral"):
(a) all Accounts;
(b) all Cash and Cash Equivalents maintained on deposit with
the Collateral Agent;
(c) all Chattel Paper;
(d) all Deposit Accounts;
(e) all Documents;
(f) all Equipment;
(g) all Fixtures;
(h) all General Intangibles, including without limitation
Contracts;
(i) all Instruments;
(j) all Inventory;
(k) all Investment Property;
(l) all Trademarks;
(m) all Trademark Licenses;
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(n) all books, records, ledger cards, files, correspondence,
computer programs, tapes, disks, and related data processing
software (owned by such Grantor or in which it has an
interest) that at any time evidence or contain information
relating to any Collateral or are otherwise necessary or
helpful in the collection thereof or realization thereupon;
and
(o) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing, and Accessions and
After Acquired Property;
provided that this Agreement shall not constitute an assignment of, or
a grant of a security interest in or lien on, (i) any Contract (including
any license or use agreement) if the terms of the Contract prohibit the
assignment thereof or grant of a security interest or lien therein, or (ii)
any Property subject to a Contract (including any license or use agreement)
if the terms of the Contract prohibit the assignment of such Property or
grant of a security interest or lien in such Property.
The Grantors and the Collateral Agent, on behalf of the Debenture
Holders, hereby acknowledge and agree that the security interest created
hereby in the Collateral (i) constitutes continuing collateral security for
all of the Secured Obligations, whether now existing or hereafter arising
and (ii) is not to be construed as an assignment of any Trademarks or
Trademark Licenses.
Notwithstanding the foregoing, with respect to any and all assets
purchased AHIC from Dr. Voracek and/or his entities (collectively,
"Voracek") that own clinics being purchased by the Company in accordance
with the terms of the Plan together with all replacement collateral thereof
(collectively, the "Voracek Assets"), the Debenture Holders hereby consent
and agree to (a) the granting by Grantors of a first priority purchase money
security interest in favor of Voracek, and (b) the subordination of the
Debenture Holders' first priority security interest in the Voracek Assets to
a properly perfected purchase money security interest in favor of Voracek.
3. Representations and Warranties. Each Grantor hereby represents
and warrants to the Collateral Agent, for the benefit of the Debenture
Holders, that so long as any of the Secured Obligations remain outstanding,
and until all of the obligations under the Debentures shall have been
terminated:
(a) Chief Executive Office; Books & Records. Each Grantor's
chief executive office and chief place of business is (and for the
prior four months have been) located at the locations set forth on
Schedule 3(a) hereto, and each Grantor keeps its books and records at
such locations.
(b) Location of Collateral. The location of all Collateral owned
by each Grantor is as shown on Schedule 3(b) hereto.
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(c) Ownership. Each Grantor is the legal and beneficial owner of
its Collateral and has the right to pledge, sell, assign or transfer
the same. Each Grantor's legal name is as shown in this Security
Agreement and no Grantor has in the past four months changed its name,
been party to a merger, consolidation or other change in structure or
used any tradename except as set forth in Schedule 3(c) attached
hereto.
(d) Security Interest/Priority. This Security Agreement creates
a valid first priority security interest in favor of the Collateral
Agent, or, with respect to the Collateral listed on Schedule 2 hereof,
a second priority security interest, for the benefit of the Debenture
Holders, in the Collateral of such Grantor and, when properly perfected
by filing, shall constitute a valid perfected security interest in such
Collateral, to the extent such security can be perfected by filing
under the UCC, free and clear of all Liens.
(e) Farm Products. None of the Collateral constitutes, or is the
Proceeds of, Farm Products.
(f) Accounts. (i) Each Account of the Grantors and the papers
and documents relating thereto are genuine and in all material respects
what they purport to be, (ii) each Account arises out of (A) a bona
fide sale of goods sold and delivered by such Grantor (or is in the
process of being delivered) or (B) services theretofore actually
rendered by such Grantor to, the account debtor named therein, (iii) no
Account of a Grantor is evidenced by any Instrument or Chattel Paper
unless such Instrument or Chattel Paper has been theretofore endorsed
over and delivered to the Collateral Agent and (iv) no surety bond was
required or given in connection with any Account of a Grantor or the
contracts or purchase orders out of which they arose.
(g) Inventory. No Inventory is held by a Grantor pursuant to
consignment, sale or return, sale on approval or similar arrangement.
(h) Trademarks.
(i) Schedule 1(b) hereto includes all Trademarks and
Trademark Licenses owned by the Grantors in their own names as of
the date hereof.
(ii) Each Trademark of such Grantor is valid, subsisting,
unexpired, enforceable and has not been abandoned.
(iii) Except as set forth in Schedule 1(b) hereto, none of
such Trademarks is the subject of any licensing or franchise
agreement.
(iv) No holding, decision or judgment has been rendered by
any Governmental Authority which would limit, cancel or question
the validity of any Trademark.
(v) No action or proceeding is pending seeking to limit,
cancel or question the validity of any Trademark, or which, if
adversely determined, would have a material adverse effect on the
value of any Trademark.
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(vi) All applications pertaining to the Trademarks of each
Grantor have been duly and properly filed, and all registrations
or letters pertaining to such Trademarks have been duly and
properly filed and issued, and all of such Trademarks are valid
and enforceable.
(vii) No Grantor has made any assignment or agreement in
conflict with the security interest in the Trademarks of each
Grantor hereunder.
4. Covenants. Each Grantor covenants that, so long as any of the
Secured Obligations remain outstanding or any obligations under the
Debentures shall remain outstanding, and until all of the Commitments shall
have been terminated, such Grantor shall:
(a) Other Liens. Defend the Collateral against the claims and
demands of all other parties claiming an interest therein, keep the
Collateral free from all Liens, and not sell, exchange, transfer,
assign, lease or otherwise dispose of the Collateral or any interest
therein.
(b) Preservation of Collateral. Keep the Collateral in good
order, condition and repair and not use the Collateral in violation of
the provisions of this Security Agreement or any other agreement
relating to the Collateral or any policy insuring the Collateral or any
applicable statute, law, bylaw, rule, regulation or ordinance.
(c) Instruments/Chattel Paper. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by
any Instrument or Chattel Paper, immediately deliver such Instrument or
Chattel Paper to the Collateral Agent, duly endorsed in a manner
satisfactory to the Collateral Agent, to be held as Collateral pursuant
to this Security Agreement.
(d) Change in Location. Not, without providing 30 days prior
written notice to the Collateral Agent and without filing such
amendments to any previously filed financing statements as the
Collateral Agent may require, (a) change the location of its chief
executive office and chief place of business (as well as its books and
records) from the locations set forth on Schedule 3(a) hereto, (b)
change the location of its Collateral from the locations set forth for
such Grantor on Schedule 3(b) hereto, or (c) change its name, be party
to a merger, consolidation or other change in structure or use any
tradename other than as set forth on Schedule 3(c) attached hereto.
(e) Inspection. Upon reasonable notice, and during reasonable
hours, at all times allow the Collateral Agent or its representatives
to visit and inspect the Collateral.
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(f) Perfection of Security Interest. Execute and deliver to the
Collateral Agent such agreements, assignments or instruments (including
affidavits, notices, reaffirmations and amendments and restatements of
existing documents, as the Collateral Agent may reasonably request) and
do all such other things as the Collateral Agent may reasonably deem
necessary or appropriate (i) to assure to the Collateral Agent its
security interests hereunder, including (A) such financing statements
(including renewal statements) or amendments thereof or supplements
thereto or other instruments as the Collateral Agent may from time to
time reasonably request in order to perfect and maintain the security
interests granted hereunder in accordance with the UCC, and (B) with
regard to Trademarks, a Notice of Grant of Security Interest in
Trademarks for filing with the United States Patent and Trademark
Office in the form of Schedule 4(f)(i) attached hereto, (ii) to
consummate the transactions contemplated hereby and (iii) to otherwise
protect and assure the Collateral Agent of its rights and interests
hereunder. To that end, each Grantor agrees that the Collateral Agent
may file one or more financing statements disclosing the Collateral
Agent's security interest in any or all of the Collateral of such
Grantor without, to the extent permitted by law, such Grantor's
signature thereon, and further each Grantor also hereby irrevocably
makes, constitutes and appoints the Collateral Agent, its nominee or
any other person whom the Collateral Agent may designate, as such
Grantor's attorney in fact with full power and for the limited purpose
to sign in the name of such Grantor any such financing statements, or
amendments and supplements to financing statements, renewal financing
statements, notices or any similar documents which in the Collateral
Agent's reasonable discretion would be necessary, appropriate or
convenient in order to perfect and maintain perfection of the security
interests granted hereunder, such power, being coupled with an
interest, being and remaining irrevocable so long as the Debentures are
in effect or any obligations thereunder shall remain outstanding. Each
Grantor hereby agrees that a carbon, photographic or other reproduction
of this Security Agreement or any such financing statement is
sufficient for filing as a financing statement by the Collateral Agent
without notice thereof to such Grantor wherever the Collateral Agent
may in its sole discretion desire to file the same. In the event for
any reason the law of any jurisdiction other than New York becomes or
is applicable to the Collateral of any Grantor or any part thereof, or
to any of the Secured Obligations, such Grantor agrees to execute and
deliver all such instruments and to do all such other things as the
Collateral Agent in its sole discretion reasonably deems necessary or
appropriate to preserve, protect and enforce the security interests of
the Collateral Agent under the law of such other jurisdiction (and, if
a Grantor shall fail to do so promptly upon the request of the
Collateral Agent, then the Collateral Agent may execute any and all
such requested documents on behalf of such Grantor pursuant to the
power of attorney granted hereinabove). If any Collateral is in the
possession or control of a Grantor's agents and the Collateral Agent so
requests, such Grantor agrees to notify such agents in writing of the
Collateral Agent's security interest therein and, upon the Collateral
Agent's request, instruct them to hold all such Collateral for the
Debenture Holders' account and subject to the Collateral Agent's
instructions. Each Grantor agrees to mark its books and records to
reflect the security interest of the Collateral Agent in the
Collateral.
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(g) Treatment of Accounts. Not grant or extend the time for
payment of any Account, or compromise or settle any Account for less
than the full amount thereof, or release any person or property, in
whole or in part, from payment thereof, or allow any credit or discount
thereon, other than as normal and customary in the ordinary course of a
Grantor's business or as required by law.
(h) Covenants Relating to Trademarks.
(i) (A) Continue to use each Trademark on each and every
trademark class of goods applicable to its current line as
reflected in its current catalogs, brochures and price lists in
order to maintain such Trademark in full force free from any claim
of abandonment for non-use, (B) maintain as in the past the
quality of products and services offered under such Trademark, (C)
employ such Trademark with the appropriate notice of registration,
(D) not adopt or use any mark which is confusingly similar or a
colorable imitation of such Trademark unless the Collateral Agent,
for the ratable benefit of the Debenture Holders, shall obtain a
perfected security interest in such mark pursuant to this Security
Agreement, and (E) not (and not permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act whereby any
Trademark may become invalidated or deemed abandoned.
(ii) Notify the Collateral Agent and the Debenture Holders
immediately if it knows, or has reason to know, that any
application or registration relating to any Trademark may become
abandoned or dedicated, or of any adverse determination or
development (including, without limitation, the institution of, or
any such determination or development in, any proceeding in the
United States Patent and Trademark Office or any court or tribunal
in any country) regarding a Grantor's ownership of any Trademark
or its right to register the same or to keep and maintain the
same.
(iii) Whenever a Grantor, either by itself or through an
agent, employee, licensee or designee, shall file an application
for the registration of any Trademark with the United States
Patent and Trademark Office or any similar office or agency in any
other country or any political subdivision thereof, a Grantor
shall report such filing to the Collateral Agent and the Debenture
Holders within five Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon request of the
Collateral Agent, a Grantor shall execute and deliver any and all
agreements, instruments, documents and papers as the Collateral
Agent may reasonably request to evidence the Collateral Agent's
and the Debenture Holders' security interest in any Trademark and
the goodwill and general intangibles of a Grantor relating thereto
or represented thereby.
(iv) Take all reasonable and necessary steps, including,
without limitation, in any proceeding before the United States
Patent and Trademark Office, or any similar office or agency in
any other country or any political subdivision thereof, to
maintain and pursue each application (and to obtain the relevant
registration) and to maintain each registration of the Trademarks,
including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability.
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(v) Promptly notify the Collateral Agent and the Debenture
Holders after it learns that any Trademark included in the
Collateral is infringed, misappropriated or diluted by a third
party and promptly sue for infringement, misappropriation or
dilution, to seek injunctive relief where appropriate and to
recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as it
shall reasonably deem appropriate under the circumstances to
protect such Trademark.
(vi) Not make any assignment or agreement in conflict with
the security interest in the Trademarks of each Grantor hereunder.
(i) New Trademarks. Promptly provide the Collateral Agent with
(i) a listing of all applications, if any, for new Trademarks (together
with a listing of the issuance of registrations or letters on present
applications), which new applications and issued registrations or
letters shall be subject to the terms and conditions hereunder, and
(ii) (A) with respect to Trademarks, a duly executed Notice of Security
Interest in Trademarks or (B) such other duly executed documents as the
Collateral Agent may request in a form acceptable to counsel for the
Collateral Agent and suitable for recording to evidence the security
interest in the Trademark which is the subject of such new application.
(j) Insurance. Insure, repair and replace the Collateral of such
Grantor. All insurance proceeds shall be subject to the security
interest of the Collateral Agent hereunder.
5. Advances by Debenture Holders. On failure of any Grantor to
perform any of the covenants and agreements contained herein, the Collateral
Agent may, at its sole option and in its sole discretion, perform the same
and in so doing may expend such sums as the Collateral Agent may reasonably
deem advisable in the performance thereof, including, without limitation,
the payment of any insurance premiums, the payment of any taxes, a payment
to obtain a release of a Lien or potential Lien, expenditures made in
defending against any adverse claim and all other expenditures which the
Collateral Agent or the Debenture Holders may make for the protection of the
security hereof or which may be compelled to make by operation of law. All
such sums and amounts so expended shall be repayable by the Grantors on a
joint and several basis promptly upon timely notice thereof and demand
therefor, shall constitute additional Secured Obligations and shall bear
interest from the date said amounts are expended at the default rate
specified in the Debentures. No such performance of any covenant or
agreement by the Debenture Holders on behalf of any Grantor, and no such
advance or expenditure therefor, shall relieve the Grantors of any default
under the terms of this Security Agreement or the Debentures. The Debenture
Holders may make any payment hereby authorized in accordance with any bill,
statement or estimate procured from the appropriate public office or holder
of the claim to be discharged without inquiry into the accuracy of such
bill, statement or estimate or into the validity of any tax assessment,
sale, forfeiture, tax lien, title or claim except to the extent such payment
is being contested in good faith by a Grantor in appropriate proceedings and
against which adequate reserves are being maintained in accordance with
GAAP.
6. Events of Default.
The occurrence of an event which under the Debentures or under the Plan
would constitute an Event of Default shall be an Event of Default hereunder
(an "Event of Default").
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7. Remedies.
(a) General Remedies. Upon the occurrence of an Event of Default
and during continuation thereof, the Debenture Holders shall have, in
addition to the rights and remedies provided herein, under the Plan in
the Debentures, or any Affiliate of a Debenture Holder, or by law
(including, but not limited to, the rights and remedies set forth in
the Uniform Commercial Code of the jurisdiction applicable to the
affected Collateral, the rights and remedies of a secured party under
the UCC (regardless of whether the UCC is the law of the jurisdiction
where the rights and remedies are asserted and regardless of whether
the UCC applies to the affected Collateral), and, further, the
Collateral Agent may, with or without judicial process or the aid and
assistance of others, (i) enter on any premises on which any of the
Collateral may be located and, without resistance or interference by
the Grantors, take possession of the Collateral, (ii) dispose of any
Collateral on any such premises, (iii) require the Grantors to assemble
and make available to the Collateral Agent at the expense of the
Grantors any Collateral at any place and time designated by the
Collateral Agent which is reasonably convenient to both parties, (iv)
remove any Collateral from any such premises for the purpose of
effecting sale or other disposition thereof, and/or (v) without demand
and without advertisement, notice, hearing or process of law, all of
which each of the Grantors hereby waives to the fullest extent
permitted by law, at any place and time or times, sell and deliver any
or all Collateral held by or for it at public or private sale, by one
or more contracts, in one or more parcels, for cash, upon credit or
otherwise, at such prices and upon such terms as the Collateral Agent
deems advisable, in its sole discretion (subject to any and all
mandatory legal requirements). In addition to all other sums due the
Collateral Agent and the Debenture Holders with respect to the Secured
Obligations, the Grantors shall pay the Collateral Agent and each of
the Debenture Holders all reasonable documented costs and expenses
incurred by the Collateral Agent or any such Debenture Holder,
including, but not limited to, reasonable attorneys' fees and court
costs, in obtaining or liquidating the Collateral, in enforcing payment
of the Secured Obligations, or in the prosecution or defense of any
action or proceeding by or against the Collateral Agent or the
Debenture Holders or the Grantors concerning any matter arising out of
or connected with this Security Agreement, any Collateral or the
Secured Obligations, including, without limitation, any of the
foregoing arising in, arising under or related to a case under the
Bankruptcy Code. To the extent the rights of notice cannot be legally
waived hereunder, each Grantor agrees that any requirement of
reasonable notice shall be met if such notice is personally served on
or mailed, postage prepaid, to AHIC at least 10 days before the time of
sale or other event giving rise to the requirement of such notice. The
Collateral Agent and the Debenture Holders shall not be obligated to
make any sale or other disposition of the Collateral regardless of
notice having been given. To the extent permitted by law, any
Debenture Holder may be a purchaser at any such sale. To the extent
permitted by applicable law, each of the Grantors hereby waives all of
its rights of redemption with respect to any such sale. Subject to the
provisions of applicable law, the Collateral Agent and the Debenture
Holders may postpone or cause the postponement of the sale of all or
any portion of the Collateral by announcement at the time and place of
such sale, and such sale may, without further notice, to the extent
permitted by law, be made at the time and place to which the sale was
postponed, or the Collateral Agent and the Debenture Holders may
further postpone such sale by announcement made at such time and place.
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(b) Remedies relating to Accounts. Upon the occurrence of an
Event of Default and during the continuation thereof, whether or not
the Collateral Agent has exercised any or all of its rights and
remedies hereunder, each Grantor will promptly upon request of the
Collateral Agent instruct all account debtors to remit all payments in
respect of Accounts to a mailing location selected by the Collateral
Agent. In addition, the Collateral Agent or its designee may notify
any Grantor's customers and account debtors that the Accounts of such
Grantor have been assigned to the Collateral Agent or of the Collateral
Agent's security interest therein, and may (either in its own name or
in the name of a Grantor or both) demand, collect (including without
limitation by way of a lockbox arrangement), receive, take receipt for,
sell, sue for, compound, settle, compromise and give acquittance for
any and all amounts due or to become due on any Account, and, in the
Collateral Agent's discretion, file any claim or take any other action
or proceeding to protect and realize upon the security interest of the
Debenture Holders in the Accounts. Each Grantor acknowledges and
agrees that the Proceeds of its Accounts remitted to or on behalf of
the Collateral Agent in accordance with the provisions hereof shall be
solely for the Collateral Agent's own convenience and that such Grantor
shall not have any right, title or interest in such Accounts or in any
such other amounts except as expressly provided herein. The Collateral
Agent and the Debenture Holders shall have no liability or
responsibility to any Grantor for acceptance of a check, draft or other
order for payment of money bearing the legend "payment in full" or
words of similar import or any other restrictive legend or endorsement
or be responsible for determining the correctness of any remittance.
Each Grantor hereby agrees to indemnify the Collateral Agent and the
Debenture Holders from and against all liabilities, damages, losses,
actions, claims, judgments, costs, expenses, charges and reasonable
attorneys' fees suffered or incurred by the Collateral Agent or the
Debenture Holders (each, an "Indemnified Party") because of the
maintenance of the foregoing arrangements except as relating to or
arising out of the gross negligence or willful misconduct of an
Indemnified Party or its officers, employees or agents. In the case of
any investigation, litigation or other proceeding, the foregoing
indemnity shall be effective whether or not such investigation,
litigation or proceeding is brought by a Grantor, its directors,
shareholders or creditors or an Indemnified Party or any other Person
or any other Indemnified Party is otherwise a party thereto.
(c) Access. In addition to the rights and remedies hereunder,
upon the occurrence of an Event of Default and during the continuance
thereof, the Collateral Agent shall have the right to enter and remain
upon the various premises of the Grantors without cost or charge to the
Collateral Agent, and use the same, together with materials, supplies,
books and records of the Grantors for the purpose of collecting and
liquidating the Collateral, or for preparing for sale and conducting
the sale of the Collateral, whether by foreclosure, auction or
otherwise. In addition, the Collateral Agent may remove Collateral, or
any part thereof, from such premises and/or any records with respect
thereto, in order to effectively collect or liquidate such Collateral.
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(d) Nonexclusive Nature of Remedies. Failure by the Collateral
Agent or the Debenture Holders to exercise any right, remedy or option
under this Security Agreement, the Debentures, or as provided by law,
or any delay by the Collateral Agent or the Debenture Holders in
exercising the same, shall not operate as a waiver of any such right,
remedy or option. No waiver hereunder shall be effective unless it is
in writing, signed by the party against whom such waiver is sought to
be enforced and then only to the extent specifically stated, which in
the case of the Collateral Agent or the Debenture Holders shall only be
granted as provided herein. To the extent permitted by law, neither
the Collateral Agent, the Debenture Holders, nor any party acting as
attorney for the Collateral Agent or the Debenture Holders, shall be
liable hereunder for any acts or omissions or for any error of judgment
or mistake of fact or law other than their gross negligence or willful
misconduct hereunder. The rights and remedies of the Collateral Agent
and the Debenture Holders under this Security Agreement shall be
cumulative and not exclusive of any other right or remedy which the
Collateral Agent or the Debenture Holders may have.
(e) Retention of Collateral. The Collateral Agent may, after
providing the notices required by Section 9-505(2) of the UCC or
otherwise complying with the requirements of applicable law of the
relevant jurisdiction, to the extent the Collateral Agent is in
possession of any of the Collateral, retain the Collateral in
satisfaction of the Secured Obligations. Unless and until the
Collateral Agent shall have provided such notices, however, the
Collateral Agent shall not be deemed to have retained any Collateral in
satisfaction of any Secured Obligations for any reason.
(f) Deficiency. In the event that the proceeds of any sale,
collection or realization are insufficient to pay all amounts to which
the Collateral Agent or the Debenture Holders are legally entitled, the
Grantors shall be jointly and severally liable for the deficiency,
together with interest thereon at the default rate specified in the
Debentures, together with the costs of collection and the reasonable
fees of any attorneys employed by the Collateral Agent to collect such
deficiency. Any surplus remaining after the full payment and
satisfaction of the Secured Obligations shall be returned to the
Grantors or to whomsoever a court of competent jurisdiction shall
determine to be entitled thereto.
8. Rights of the Collateral Agent.
(a) Power of Attorney. In addition to other powers of attorney
contained herein, each Grantor hereby designates and appoints the
Collateral Agent, on behalf of the Debenture Holders, and each of its
designees or agents, as attorney-in-fact of such Grantor, irrevocably
and with power of substitution, with authority to take any or all of
the following actions upon the occurrence and during the continuance of
an Event of Default:
(i) to demand, collect, settle, compromise, adjust,
give discharges and releases, all as the Collateral Agent may
reasonably determine;
(ii) to commence and prosecute any actions at any court
for the purposes of collecting any Collateral and enforcing
any other right in respect thereof;
<PAGE>
(iii) to defend, settle or compromise any action
brought and, in connection therewith, give such discharge or
release as the Collateral Agent may deem reasonably
appropriate;
(iv) receive, open and dispose of mail addressed to a
Grantor and endorse checks, notes, drafts, acceptances, money
orders, bills of lading, warehouse receipts or other
instruments or documents evidencing payment, shipment or
storage of the goods giving rise to the Collateral of such
Grantor on behalf of and in the name of such Grantor, or
securing, or relating to such Collateral;
(v) sell, assign, transfer, make any agreement in
respect of, or otherwise deal with or exercise rights in
respect of, any Collateral or the goods or services which
have given rise thereto, as fully and completely as though
the Collateral Agent were the absolute owner thereof for all
purposes;
(vi) adjust and settle claims under any insurance policy
relating thereto;
(vii) execute and deliver all assignments,
conveyances, statements, financing statements, renewal
financing statements, security agreements, affidavits,
notices and other agreements, instruments and documents that
the Collateral Agent may determine necessary in order to
perfect and maintain the security interests and liens granted
in this Security Agreement and in order to fully consummate
all of the transactions contemplated therein;
(viii) institute any foreclosure proceedings that the
Collateral Agent may deem appropriate; and
(ix) do and perform all such other acts and things as
the Collateral Agent may reasonably deem to be necessary,
proper or convenient in connection with the Collateral.
This power of attorney is a power coupled with an interest and shall be
irrevocable (i) for so long as any of the Secured Obligations remain
outstanding, or any obligation under the Debentures shall remain
outstanding. The Collateral Agent shall be under no duty to exercise
or withhold the exercise of any of the rights, powers, privileges and
options expressly or implicitly granted to the Collateral Agent in this
Security Agreement, and shall not be liable for any failure to do so or
any delay in doing so. The Collateral Agent shall not be liable for
any act or omission or for any error of judgment or any mistake of fact
or law in its individual capacity or its capacity as attorney-in-fact
except acts or omissions resulting from its gross negligence or willful
misconduct. This power of attorney is conferred on the Collateral
Agent solely to protect, preserve and realize upon its security
interest in the Collateral.
<PAGE>
(b) Performance by the Collateral Agent of Obligations. If any
Grantor fails to perform any agreement or obligation contained herein,
the Collateral Agent itself may perform, or cause performance of, such
agreement or obligation, and the expenses of the Collateral Agent
incurred in connection therewith shall be payable by the Grantors on a
joint and several basis pursuant to Section 10 hereof.
(c) Assignment by the Collateral Agent. The Collateral Agent may
from time to time assign the Secured Obligations and any portion
thereof and/or the Collateral and any portion thereof, and the assignee
shall be entitled to all of the rights and remedies of the Collateral
Agent under this Security Agreement in relation thereto.
(d) The Collateral Agent's Duty of Care. Other than the exercise
of reasonable care to assure the safe custody of the Collateral while
being held by the Collateral Agent hereunder, the Collateral Agent
shall have no duty or liability to preserve rights pertaining thereto,
it being understood and agreed that the Grantors shall be responsible
for preservation of all rights in the Collateral, and the Collateral
Agent shall be relieved of all responsibility for the Collateral upon
surrendering it or tendering the surrender of it to the Grantors. The
Collateral Agent shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which the
Collateral Agent accords its own property, which shall be no less than
the treatment employed by a reasonable and prudent agent in the
industry, it being understood that the Collateral Agent shall not have
responsibility for taking any necessary steps to preserve rights
against any parties with respect to any of the Collateral.
9. Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, any payments in respect of the Secured
Obligations and any proceeds of the Collateral, when received by the
Collateral Agent or any of the Debenture Holders in cash or its equivalent,
will be applied in reduction of the Secured Obligations in the order set
forth in the Debentures and each Grantor irrevocably waives the right to
direct the application of such payments and proceeds and acknowledges and
agrees that the Collateral Agent shall have the continuing and exclusive
right to apply and reapply any and all such payments and proceeds in the
Collateral Agent's sole discretion, notwithstanding any entry to the
contrary upon any of its books and records.
10. Costs of Counsel. If at any time hereafter, whether upon the
occurrence of an Event of Default or not, the Collateral Agent employs
counsel to prepare or consider amendments, waivers or consents with respect
to this Security Agreement, or to take action or make a response in or with
respect to any legal or arbitral proceeding relating to this Security
Agreement or relating to the Collateral, or to protect the Collateral or
exercise any rights or remedies under this Security Agreement or with
respect to the Collateral, then the Grantors agree to promptly pay upon
demand any and all such reasonable documented costs and expenses of the
Collateral Agent or the Debenture Holders, all of which costs and expenses
shall constitute Secured Obligations hereunder.
<PAGE>
11. Continuing Agreement.
(a) This Security Agreement shall be a continuing agreement in
every respect and shall remain in full force and effect so long as any
of the Secured Obligations remain outstanding or any obligations under
the Debentures shall remain outstanding. Upon such payment and
termination, this Security Agreement shall be automatically terminated
and the Collateral Agent and the Debenture Holders shall, upon the
request and at the expense of the Grantors, forthwith release all of
its liens and security interests hereunder and shall execute and
deliver all UCC termination statements and/or other documents
reasonably requested by the Grantors evidencing such termination.
Notwithstanding the foregoing all releases and indemnities provided
hereunder shall survive termination of this Security Agreement.
(b) This Security Agreement shall continue to be effective or be
automatically reinstated, as the case may be, if at any time payment,
in whole or in part, of any of the Secured Obligations is rescinded or
must otherwise be restored or returned by the Collateral Agent or any
Debenture Holder as a preference, fraudulent conveyance or otherwise
under any bankruptcy, insolvency or similar law, all as though such
payment had not been made; provided that in the event payment of all or
any part of the Secured Obligations is rescinded or must be restored or
returned, all reasonable costs and expenses (including without
limitation any reasonable legal fees and disbursements) incurred by the
Collateral Agent or any Debenture Holder in defending and enforcing
such reinstatement shall be deemed to be included as a part of the
Secured Obligations.
12. Amendments; Waivers; Modifications. This Security Agreement and
the provisions hereof may not be amended, waived, modified, changed,
discharged or terminated except as set forth in the Debentures.
13. Successors in Interest. This Security Agreement shall create a
continuing security interest in the Collateral and shall be binding upon
each Grantor, its successors and assigns and shall inure, together with the
rights and remedies of the Collateral Agent and the Debenture Holders
hereunder, to the benefit of the Collateral Agent and the Debenture Holders
and their successors and permitted assigns. To the fullest extent permitted
by law, each Grantor hereby releases the Collateral Agent and each Debenture
Holder, and its successors and assigns, from any liability for any act or
omission relating to this Security Agreement or the Collateral, except for
any liability arising from the gross negligence or willful misconduct of the
Collateral Agent, or such Debenture Holder, or its officers, employees or
agents.
14. Notices. All notices required or permitted to be given under this
Security Agreement shall be in conformance with the provisions of the
Debenture.
15. Counterparts. This Security Agreement may be executed in any
number of counterparts, each of which where so executed and delivered shall
be an original, but all of which shall constitute one and the same
instrument. It shall not be necessary in making proof of this Security
Agreement to produce or account for more than one such counterpart.
<PAGE>
16. Headings. The headings of the sections and subsections hereof are
provided for convenience only and shall not in any way affect the meaning or
construction of any provision of this Security Agreement.
17. Governing Law; Submission to Jurisdiction; Venue.
(a) THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Any legal action or proceeding with respect to this Security
Agreement may be brought in the courts of the State of New York,
or the United States for the Southern District of New York, and,
by execution and delivery of this Security Agreement, each Grantor
hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of such
courts. Each Grantor further irrevocably consents to the service
of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to it at the
address for notices pursuant to the provisions of the Debenture,
such service to become effective 30 days after such mailing.
Nothing herein shall affect the right of the Collateral Agent to
serve process in any other manner permitted by law or to commence
legal proceedings or to otherwise proceed against any Grantor in
any other jurisdiction.
(b) Each Grantor hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any
of the aforesaid actions or proceedings arising out of or in
connection with this Security Agreement brought in the courts
referred to in subsection (a) hereof and hereby further
irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court
has been brought in an inconvenient forum.
18. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES TO THIS SECURITY AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
19. Severability. If any provision of any of the Security Agreement
is determined to be illegal, invalid or unenforceable, such provision shall
be fully severable and the remaining provisions shall remain in full force
and effect and shall be construed without giving effect to the illegal,
invalid or unenforceable provisions.
20. Entirety. This Security Agreement, the Debentures, the Plan and
the Confirmation Order represent the entire agreement of the parties hereto
and thereto, and supersede all prior agreements and understandings, oral or
written, if any.
21. Survival. All representations and warranties of the Grantors
hereunder shall survive the execution and delivery of this Security
Agreement and the Debentures.
<PAGE>
22. Other Security. To the extent that any of the Secured Obligations
are now or hereafter secured by property other than the Collateral
(including, without limitation, real property and securities owned by a
Grantor), or by a guarantee, endorsement or property of any other Person,
then the Collateral Agent and the Debenture Holders shall have the right to
proceed against such other property, guarantee or endorsement upon the
occurrence of any Event of Default, and the Collateral Agent and the
Debenture Holders have the right, in their sole discretion, to determine
which rights, security, liens, security interests or remedies the Collateral
Agent and the Debenture Holders shall at any time pursue, relinquish,
subordinate, modify or take with respect thereto, without in any way
modifying or affecting any of them or any of the Collateral Agent's and the
Debenture Holders' rights or the Secured Obligations under this Security
Agreement or under the Debentures.
23. Joint and Several Obligations of Grantors.
(a) Each of the Grantors is accepting joint and several liability
hereunder in consideration of the financial accommodation to be
provided by the Debenture Holders under the Plan and the Debentures,
for the mutual benefit, directly and indirectly, of each of the
Grantors and in consideration of the undertakings of each of the
Grantors to accept joint and several liability for the obligations of
each of them.
(b) Each of the Grantors jointly and severally hereby irrevocably
and unconditionally accepts, not merely as a surety but also as a co-
debtor, joint and several liability with the other Grantors with
respect to the payment and performance of all of the Secured
Obligations arising under this Security Agreement and the Debentures,
it being the intention of the parties hereto that all the Obligations
shall be the joint and several obligations of each of the Grantors
without preferences or distinction among them.
(c) Notwithstanding any provision to the contrary contained
herein or in the Debentures, the obligations of each Grantor shall be
limited to an aggregate amount equal to the largest amount that would
not render such obligations subject to avoidance under Section 548 of
the Bankruptcy Code or any comparable provisions of any applicable
state law.
24. Rights of Required Debenture Holders. All rights of the
Collateral Agent hereunder, if not exercised by the Collateral Agent, may be
exercised by the Required Debenture Holders.
<PAGE>
Each of the parties hereto has caused a counterpart of this Security
Agreement to be duly executed and delivered as of the date first above
written.
GRANTORS: AMERICAN HEALTHCHOICE, INC.,
-------- a New York corporation
By: _____________________________________________
Name:
Title:
AHC Chiropractic Clinics, Inc.,
a Texas corporation
By: _____________________________________________
Name:
Title:
AHC Physicians Corporation, Inc.,
a Texas corporation
By: _____________________________________________
Name:
Title:
AHC Physicians Corporation, Inc.,
a Georgia corporation
By: _____________________________________________
Name:
Title:
TOTAL MEDICAL DIAGNOSTICS, INC.,
a Delaware corporation
By: _____________________________________________
Name:
Title:
NATIONWIDE SPORTS AND INJURY, INC.,
a Texas corporation
By: _____________________________________________
Name:
Title:
UNITED CHIROPRACTIC CLINICS OF UPTOWN, INC.,
a Louisiana corporation
By: _____________________________________________
Name:
Title:
<PAGE>
NEW ORLEANS EAST CHIROPRACTIC CLINICS, INC.,
a Louisiana corporation
By: _____________________________________________
Name:
Title:
AHC CLINIC MANAGEMENT, L.L.C.,
a Texas limited liability company
By: _____________________________________________
Name:
Title:
AHI MANAGEMENT, INC.,
a Texas corporation
By: _____________________________________________
Name:
Title:
DIAGNOSTIC SERVICES, INC.,
a Texas corporation
By: _____________________________________________
Name:
Title:
KATY SPORTS INJURY AND REHAB,
INCORPORATED,
a Texas corporation
By: _____________________________________________
Name:
Title:
PACIFIC CHIROPRACTIC (SAN PEDRO),
INCORPORATED, d/b/a United Chiropractic Clinic,
a Texas corporation
By: _____________________________________________
Name:
Title:
APPLE CHIROPRACTIC CLINIC OF WURZBACH,
INCORPORATED,
a Texas corporation
By: _____________________________________________
Name:
Title:
<PAGE>
VALLEY FAMILY HEALTH CENTER, L.L.C.,
a Texas limited liability company
By: _____________________________________________
Name:
Title:
Accepted and agreed to as of the date first above written.
SOUTHRIDGE CAPITAL MANAGEMENT, LLC,
as Collateral Agent
By: ______________________________
Name:
Title:
<PAGE>
SCHEDULE 1(b)
-------------
INTELLECTUAL PROPERTY
None.
<PAGE>
SCHEDULE 3(a)
-------------
CHIEF EXECUTIVE OFFICE
1300 West Walnut Hill Lane Suite 275
Irving, Texas 75038
<PAGE>
SCHEDULE 3(b)
-------------
LOCATIONS OF COLLATERAL
United Chiropractic
6416 Bandera Rd. Suite B
San Antonio, TX 78230
United Chiropractic
9906 San Pedro
San Antonio, TX 78216
United Chiropractic
10935 Wurzbach Bldg. A Suite 102
San Antonio, TX 78230
United Chiropractic
720 S. Mason
Katy, TX 77450
Valley Family Health Center
510 W. Expressway 83
McAllen, TX 78501
Southcross Medical
3930 E. Southcross
San Antonio, TX 78222
San Pedro Medical
9904 San Pedro
San Antonio, TX 78216
United Chiropractic Uptown
807 S. Carrolton
New Orleans, LA 70118
New Orleans East Chiropractic
200 South Broad St. Suite 150
New Orleans, LA 70119
American HealthChoice, Inc.
1300 W. Walnut Hill Suite 275
Irving, TX 75038
<PAGE>
SCHEDULE 3(c)
-------------
MERGERS, CONSOLIDATIONS, CHANGE IN STRUCTURE OR USE OF TRADENAMES
None
<PAGE>
SCHEDULE 4(f)(i)
----------------
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
TRADEMARKS
United States Patent and Trademark Office
Gentlemen:
Please be advised that pursuant to the Security Agreement dated as of
July __, 2000 (the "Security Agreement") by and among the Grantors party
thereto (each an "Grantor" and collectively, the "Grantors") and
_________________, as Collateral Agent (the "Collateral Agent") for the
Debenture Holders referenced therein (the "Debenture Holders"), the
undersigned Grantor has granted a continuing security interest in and
continuing lien upon, the trademarks and trademark applications shown below
to the Collateral Agent for the ratable benefit of the Debenture Holders:
TRADEMARKS
----------
Description of Trademark Date of
Trademark No. Item Trademark
------------- ------------------------ ---------
NONE
TRADEMARK APPLICATIONS
----------------------
Trademark Description of Trademark Date of Trademark
Applications No. Applied For Applications
---------------- ------------------------ -----------------
NONE
<PAGE>
The Grantors and the Collateral Agent, on behalf of the Debenture
Holders, hereby acknowledge and agree that the security interest in the
foregoing trademarks and trademark applications (i) may only be terminated
in accordance with the terms of the Security Agreement and (ii) is not to be
construed as an assignment of any trademark or trademark application.
Very truly yours,
__________________________________
[Grantor]
By: _____________________________
Name:
Title:
Acknowledged and Accepted:
_______________________, as Collateral Agent
By: ___________________
Name:
Title:
